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With the UK voting to leave the EU having unleashed all manner of market messiness in June, we find ourselves with an interesting and uniquely positive view of the road ahead. Like the drive to the local railway station in the early morning mist, visibility is limited, yet as the day wears on the way should become clearer.
It's arguably times like this that are simplest to analyse though. The keyword is of course uncertainty, and what do we do when times are uncertain? Look at it like this: Imagine you’re a golfer. Everyone knows golfers go out onto the course whatever the weather. It looks as if there’s a thunderstorm brewing – an 80% chance according to forecasts. Of course, you go out and play. You’ll put on your waterproofs and pack your enormous umbrella but, by Jove, you’re going to play. You adjust your game for the conditions and you play well. You’re no fair weather golfer!
Another potential (and entirely made up) situation. An important referendum is nigh. Heavy rain is forecast and the news anchors are suggesting many may not head out into the deluge to cast their votes. It’s raining after all. In this case, however, the inaction of those who wouldn’t brave the storm has ushered in an even greater one. A Tempest! This Tempest appears pleasing to many but it’s left those who wouldn’t face the initial storm holed up inside.
All that’s been written above is post-Brexit vote. Yet it argues that action is better than inaction, whatever the weather. Action realises opportunity. Inaction does so only for other people.
So, action it is – but you want to know where to focus your energy. You’ll need every bit of it in some areas of the market but there are others that are tamer. Financials for example. Rough and potentially thrilling. Like bungee jumping, you’ll need to calculate how much cord you need to avoid being dashed on the rocks before the tension hurls you back into the sky. These stocks are the most sensitive to the Brexit uncertainty and the implications that’s had for global growth and the course of both UK and US monetary policy. Banks like it tight (namely higher interest rates) but the fashion appears to favour the loose these days.
Consumer goods / pharmaceuticals / tobacco. Defensive. More like riding the Severn Bore – catch the wave and it’s exhilarating, miss it and as long as the tide’s coming in the river might at least be flowing the right way. At the current time there are many discounted stocks and plenty of bargain hunting to be had, but remember a bargain’s not a bargain until it stops getting cheaper.
The fence separating the bulls and the bears - certainty from uncertainty – is easily visible through this particular morning mist. We are therefore eschewing a cautious approach to selecting this quarter’s portfolio, because in this instance caution may well bring decent capital gains as well as the traditionally sought income. Why throw caution to the wind and hope for more?!
Let Q3 2016 herald the rise of the fussy glutton…
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In the green camp, precious metals miners Randgold Resources (RRS) and Fresnillo (FRES) are the clear winners with an incredibly bullish first half of the year capped by that surprise Brexit vote that sent the likes of Gold and Silver back up towards multi-month highs. Risk play Anglo American (AAL) has held its own stellar recovery that began back in Q1 while we note the presence of the UK 100 ’s blue chip oil majors which have benefitted handsomely from favourable FX moves in the GBP and USD as a result of the UK’s decision to leave the EU.
The above tables illustrate the extent to which the Brexit vote has been a serious driver for the UK Index blue chips’ performances in Q2. The event has seriously altered the UK’s investment landscape, proving a disaster for many of the more traditional risk plays, yet uncovering a world of opportunity in defensives and stocks that report in US Dollars.
Noted outperformers that aren’t in the top 10 above include the big defensives British American Tobacco (BATS), United Utilities (UU.) and GlaxoSmithKline (GSK). With investors’ nerves surely being tested by Brexit, could sector peers Diageo (DGE), Reckitt Benckiser (RB.) and Imperial Brands (IMT) follow in their footsteps in Q3?
Are the oil Majors BP (BP.) and Royal Dutch Shell (RDSb) set to sail to more favourable climes on a buoyant oil price and beneficial foreign exchange conditions? Does Shire (SHP) still deserve its ‘zero sells’ status? And what does the future hold for the UK Index copper miner Antofagasta (ANTO)? Read on to find out.
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Will shares break above 4100p or pull back towards the channel floor at 3600p?
Broker Consensus: 64% Buy, 27% Hold, 9% Sell
Bullish: AlphaValue, Add, Target 4399p, +8.5% (30 Jun)
Average Target: 4101p, +1.2% (5 Jul)
Bearish: Canaccord Genuity, Sell, Target 3250p, -20% (9 Jun)[/vc_column_text][/vc_column][/vc_row]
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Will shares break above 1666p or pull back into the rising channel?
Broker Consensus: 25% Buy, 59% Hold, 16% Sell
Bullish: HSBC, Buy, Target 1865p, +14% (28 April)
Average Target: 1538p, -6% (6 Jul)
Bearish: Mirabaud Securities, hold, Target 1270p, -22% (14 June)[/vc_column_text][/vc_column][/vc_row]
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Will shares break out above 1045p or pull back towards the lows of 820p?
Broker Consensus: 26% Buy, 58% Hold, 16% Sell
Bullish: Bernstein, Outperform, Target 1060p, +2.4% (24 June)
Average Target: 970p, -6% (6 Jul)
Bearish: AlphaValue, Sell, Target 794p, -23% (30 June)[/vc_column_text][/vc_column][/vc_row]
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Will shares break out above 7795p or pull back towards the lows of 5400p?
Broker Consensus: 46% Buy, 42% Hold, 12% Sell
Bullish: Societe Generale, Buy, Target 8600p, +13% (27 June)
Average Target: 7422p, -3% (6 Jul)
Bearish: Independent Research, Sell, Target 5600p, -27% (27 April)[/vc_column_text][/vc_column][/vc_row]
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Will shares pull back towards the lows of 320p or keep on moving up towards the highs of 527p?
Broker Consensus: 38% Buy, 50% Hold, 12% Sell
Bullish: Barclays, Overweight, Target 600p, +34% (27 June)
Average Target: 431p, -3.4% (6 Jul)
Bearish: Oddo, Reduce, Target 340p, -24% (15 June)[/vc_column_text][/vc_column][/vc_row]
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Will shares pull back towards the neckline at 1848p or move on up towards the highs of 2600p?
Broker Consensus: 59% Buy, 32% Hold, 9% Sell
Bullish: Barclays, Overweight, Target 2600p, +22% (5 July)
Average Target: 2045p, -4% (7 Jul)
Bearish: Canaccord Genuity, Hold, Target 1550p, -27% (20 May)[/vc_column_text][/vc_column][/vc_row]
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Will shares pull back below the 200-day moving average or rally back towards the highs of 800p?
Broker Consensus: 17% Buy, 42% Hold, 42% Sell
Bullish: Bernstein, Outperform, Target 610p, +28% (5 July)
Average Target: 450p, -5% (7 Jul)
Bearish: Goldman Sachs, Sell, Target 280p, -41% (27 June)[/vc_column_text][/vc_column][/vc_row]
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Will shares pull back towards the lows of 3500p or rally on towards the highs of 5750p?
Broker Consensus: 96% Buy, 4% Hold, 0% Sell
Bullish: AlphaValue, Buy, Target 6803p, +40% (7 July)
Average Target: 5721p, +18% (7 Jul)
Bearish: Bernstein, Outperform, Target 5000p, +3% (6 July)[/vc_column_text][/vc_column][/vc_row]
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Will shares pull back towards the lows of 1600p or break out to fresh all-time highs and continue the 12-year uptrend?
Broker Consensus: 55% Buy, 39% Hold, 6% Sell
Bullish: Berenberg, Buy, Target 2350p, +8.5% (7 July)
Average Target: 2136p, -1.4% (7 Jul)
Bearish: Canaccord Genuity, Sell, Target 1660p, -23% (28 Jan)[/vc_column_text][/vc_column][/vc_row]
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Will shares return to support at 4305p or break out above 5000p?
Broker Consensus: 46% Buy, 39% Hold, 15% Sell
Bullish: Goldman Sachs, Buy, Target 5340p, +8.6% (4 July)
Average Target: 4727p, -4% (7 July)
Bearish: Canaccord Genuity, Sell, Target 3585p, -27% (3 May)[/vc_column_text][/vc_column][/vc_row]
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By the time you read this the share prices of the above companies will have moved. That’s why it’s so important you get the information you need when it’s fresh and ideally before the wider market stops reacting. Why not open a demo trading account and have a look at the most recent price data for the above companies – where did shares go based on the factors discussed? If you’ve seen something interesting and would like to discuss it, give us a call and speak to one of our friendly team of traders. We’re always delighted to engage in interesting, thought provoking conversations about the markets.
We don’t believe that talking only about profits is giving a good service, but we do think that communicating with you is a good thing! To that end, our aim is to provide any help you need by highlighting opportunities which may be profitable to you, the investor, and assist you in making investment decisions which can benefit from the use of leveraged instruments.
At Accendo Markets we don’t tell you what to do. It’s your call whether you buy or sell. We think that’s really important.
Our approach focuses on 3 elements below;
The Accendo Markets Research Offering
Does your current broker’s morning report tell you all you need to know about yesterday’s news? If so, how is it offering you anything more than the plethora of information already available on the internet? What about what’s happened overnight?
We’re proud that our morning editorial has become a hot commodity in the City, its content quoted daily by the journalists that are writing the news everyone else will be reading later in the day, if not the next. Our morning report tells you what’s driving the market at that moment and what to look out for in the day ahead.
If a company has reported earnings before the market opens, we’ll tell you why the shares are called to open up or down in relation to that announcement.
We don’t simply tell you which macro-economic data prints are due at what time, we break each driver down so that you fully understand what it all means. What are the expectations in relation to the historic trend? How will this affect the trading day ahead?
The journalists don’t pay for it and neither do you, so why not give it a go? You’ve nothing to lose and perhaps a little more to gain.
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This research is produced by Accendo Markets Limited. Research produced and disseminated by Accendo Markets is classified as non-independent research, and is therefore a marketing communication. This investment research has not been prepared in accordance with legal requirements designed to promote its independence and it is not subject to the prohibition on dealing ahead of the dissemination of investment research. This research does not constitute a personal recommendation or offer to enter into a transaction or an investment, and is produced and distributed for information purposes only.
Accendo Markets considers opinions and information contained within the research to be valid when published, and gives no warranty as to the investments referred to in this material. The income from the investments referred to may go down as well as up, and investors may realise losses on investments. The past performance of a particular investment is not necessarily a guide to its future performance. Prepared by Michael van Dulken, Head of Research